PARKER, COLO. (RFD-TV) — Farmers and truckers can use red-dyed diesel on public highways under temporary federal relief, but questions remain about the final tax treatment and how state rules affect drivers crossing state lines.
Farm CPA Paul Neiffer said President Donald Trump’s October 5 executive order provides for a deferral of certain diesel fuel tax payments, not an automatic elimination of the tax obligation.
“The executive order simply says that there’s a deferral of the tax,” Neiffer said during an interview before the IRS issued additional guidance.
On October 14, the IRS announced that it would not impose federal penalties when dyed diesel is sold for highway use or used on highways nationwide from October 1 through December 31, 2026. The agency said additional guidance on the tax deferral, including how it applies to Form 720, is still forthcoming.
Tax Deferral Is Not Tax Forgiveness
In his interview with RFD-TV, Neiffer cautioned farmers against interpreting the executive order as a permanent tax exemption.
“At least as of right now, it’s just simply a deferral of them having to pay the tax, not elimination of the tax,” he said.
The executive order directs the Treasury Department to defer certain federal excise tax payments to the extent authorized by law. It also directs the department to explore ways to eliminate the obligation to pay the deferred taxes.
During the interview, Neiffer said he anticipated that farmers might eventually need to report highway use of dyed diesel on Form 720 in January 2027. However, the IRS has not yet issued the additional guidance explaining how the deferred taxes will be reported or when any postponed payments will be due.
State Rules Still Matter
Neiffer advised farmers to consider waiting for clearer guidance before using dyed diesel in trucks that travel across state lines.
“It’s just at the federal level,” Neiffer said. “Some states, like Iowa and some other states, have granted some type of relief, but other states, like Minnesota, are not granting relief.”
The IRS has since clarified that its penalty relief applies nationwide for federal tax purposes, but it does not affect state fuel taxes or penalties. States may establish their own relief provisions, and the IRS encourages taxpayers to check with applicable state agencies for current requirements.
Neiffer used the example of an Iowa farmer delivering grain into Minnesota to illustrate the complications that can arise when state rules differ.
For farmers and truckers operating across state lines, the federal announcement should not be interpreted as blanket protection from every state-level fuel violation.
Farmers Remain Responsible for Understanding Their Tax Obligations
Neiffer said farmers generally bear responsibility for determining the tax owed when dyed diesel is used in their highway-operated trucks.
“It’s on the buyer,” he said. “It’s on the farmer to determine what they owe and then pay that tax accordingly.”
He emphasized the importance of keeping accurate records of fuel purchases and use, particularly when dyed diesel is placed into semi-trucks.
The IRS’s October 14 guidance temporarily suspends ordinary federal collection and enforcement procedures and says taxpayers do not need to maintain records necessary to substantiate their eligibility for the penalty relief during the covered period. That does not resolve the outstanding questions about the payment of any deferred tax.
Neiffer also cautioned against misrepresenting fuel use, noting that purchase records could contradict a claim that a truck used only clear diesel.
Where to Find Updates
Neiffer directs farmers to FarmCPAReport.com, where he has compiled information on state responses to the federal order.
He said state policies have been changing frequently, making it important for producers to check the latest information before deciding how to fuel trucks or transport grain across state lines.
Farm-Level Takeaway: The IRS has suspended federal penalties for highway use of dyed diesel through December 31, 2026, retroactive to October 1. However, the
Before changing fueling practices, farmers should check federal updates and rules in every state where they operate. Tax deferral reporting and payment requirements await further IRS guidance, and state fuel taxes and penalties may still apply.
LEARN MORE: www.farmcpareport.com
